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Senator Sherrod Brown Urges US Financial Regulator to Keep Out Cryptocurrency Firms Out of Banking Industry

US Senator Sherrod Brown, the chairman of the Senate Banking Committee, issued a statement requesting the Office of The Comptroller of The Currency (OCC) to review federal bank charters awarded to crypto firms and prevent any of such issuance in the future.

Senator Brown pressed the current acting Comptroller of The Currency, Michael Hsu, to review decisions reached by his predecessors to allow some crypto firms to provide some banking services nationally.

Brown, a fierce critic of the financial and banking industries, claimed that the OCC should not have awarded national trust charters to three crypto firms – Paxos National Trust, Protego Trust Bank, and Anchorage Digital Bank earlier this year.

Brown stated that he was concerned about the number of national trust charters given when Brian Brook served as the acting Comptroller of The Currency at the OCC. The Senator questioned the degree of rigorous review in which the three crypto companies endured to get such conditional charters.

Brown further said that it is unclear whether the OCC participated in the appropriate due diligence to stand behind such approvals before issuing such charters.

“Former Acting Comptroller Brian Brooks actively encouraged cryptocurrency companies to apply for a national trust charter because it had ‘relatively easy requirements’ and is ‘just a faster charter to get.’ Not only could these charter approvals lead customers to underestimate the risks related to these assets, but it could undermine faith in the safety and stability of the entire banking system,” Senator Brown stated.

Brown issued a letter addressed to Hsu, requesting the OCC to reevaluate any conditional national trust charters and stop the approval of any additional charters to nonbank organizations.

In a Senate Banking hearing held on Wednesday, May 19, Hsu made oral and written testimony affirming his intention to pursue a review.

Republicans argued that national charters for crypto companies protect consumers and encourage innovation by bringing major businesses into space under closer national supervision.

However, consumer rights groups and some Democratic lawmakers argued that bank regulators should not allow crypto firms the ability to access the market themselves, due to the regulatory, volatility, and anonymity gaps associated with cryptocurrencies.

Hsu is likely to face rising pressure from both sides over the OCC’s stance on crypto assets.

Enabling Financial Inclusion

Former President Trump appointed Brian Brooks to serve as acting Comptroller of The Currency at OCC after the resignation of Joseph Otting in May 2020. However, Brooks resigned on January 13, a week before President Biden took office, and was replaced by Blake Paulson as the acting OCC chief.

Early this month, Michela Hsu assumed acting Comptroller of Currency after US Treasury Secretary Janet Yellen announced her preference to appoint him to serve the role.

Brooks stepped down after eight months in the acting Comptroller of Currency role. He made a remarkable perspective on where the financial industry is heading, making traditional banks enter the cryptocurrency market and Wall Street investors investing in crypto assets.

Brook led the OCC in issuing important guidelines allowing federal banks to both custody crypto assets for customers and provide banking services to crypto firms. Brooks also advocated for national charters for payment firms claiming it was the answer to the ongoing unbundling of financial services.

US Senator Challenges Apple and Google about Fraudulent Crypto Apps

U.S. Senator. Sherrod Brown (D-Ohio), the chairman of the Senate Banking Committee, is requesting Apple and Google to clarify how they prevent fraudulent cryptocurrency apps on the Apple Store and Google Play Store.

On Wednesday, July 27, the U.S. lawmaker sent two letters addressed to Apple CEO Tim Cook and Google CEO Sundar Pichai.

Senator Brown is concerned about scams that continue to rob millions of dollars from innocent investors.

The lawmaker wrote in the letters to the two firms: “Cyber criminals have stolen company logos, names and other identifying information of crypto firms and then created fake mobile apps to trick unsuspecting investors into believing they are conducting business with a legitimate crypto firm. Alarmingly, far too many investors have fallen victim.”

Brown mentioned that it is essential for these app stores to have the proper measures in place to prevent fraudulent mobile application activity.

In the letter, Sen. Brown asked for details about these firms’ safeguards to prevent fraudulent activity in their app stores.

Senator Brown wrote: “In recent years, crypto trading platforms and exchanges have experienced a surge in popularity with millions of investors downloading mobile apps to trade and invest in digital assets. Millions of Americans use mobile apps to invest in unregulated digital assets, including cryptocurrencies.”

Brown further asked Apple and Google to provide details about the app review processes that these firms take before approving cryptocurrency apps to operate in their app stores, including steps they take to prevent fraudulent crypto apps and other information.

The lawmaker has requested both companies to provide responses to the letters by 10th August.

On Thursday, the Senator’s committee held a hearing examining scams in the crypto industry.

New Crypto App Scams

The senator’s letter comes after an FBI report last week providing details of fraudulent cryptocurrency apps and wallets that purport to be sound investment opportunities.

In the report published on 21st July, the FBI disclosed that 244 investors, within a year, have been scammed out of $42.7 million through fraudulent mobile applications that claim to be legitimate crypto investment platforms.

The FBI report stated that cyber fraudsters are trying to cash in and take advantage of the rising interest in both crypto investing and mobile banking.

The agency said since last October, it has witnessed scammers contacting U.S. investors with fraudulent offers of crypto investment services and convincing these investors to download fake mobile apps.

Such bogus apps often use the names and logos of legitimate US firms and fraudsters who create fake websites with this information to lure and swindle investors.

Senate banking chair considers crypto prohibition

Senator Sherrod Brown of the United States argued that it would be very difficult to implement such a prohibition due to the fact that the activity in question would just move offshore.Sherrod Brown, the chairman of the United States Banking Committee, has proposed that the Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC) might maybe consider outlawing cryptocurrencies.In answer to a question that had been posed earlier by a presenter concerning Senator Jon Tester, who is of the opinion that cryptocurrencies need to be outlawed, Brown said that he is of the same opinion.The congressman from Ohio said that he has been warning his colleagues and the general public about the risks associated with cryptocurrencies for the last eighteen months, and he has been advocating for immediate and stringent action to be done.He said that he had previously approached the Treasury and the Secretary with his request for a comprehensive review of the situation by the whole government, including all of the many regulatory agencies.Brown noted the shocking collapse of FTX as an example of why it may be worthwhile to contemplate a ban, but he stressed that this is just one significant component of the whole issue.He argued that cryptocurrencies are risky and a threat to national security, and he cited North Korean cybercriminal activity, the trafficking of drugs and humans, as well as the financing of terrorist organizations, as some of the issues that have been exacerbated as a result of the use of cryptocurrencies.

Since the beginning of this year, the chairman of the Banking Committee has been vocal about his doubts towards cryptocurrencies. Most recently, he has highlighted his worries over the issues of stablecoin issuance as well as cryptocurrency advertising and marketing efforts.On November 23, Senator Tom Emmer made the statement that the breakdown of FTX was not a failure of cryptography but rather a failure caused by centralized actors.Emmer also holds the view that crippling regulation would stifle industry innovation in the United States, causing it to lose its position of global market dominance — something that many people believe is already unfolding. Emmer is a supporter of the American Competitiveness and Innovation Act (ACIA).

Circle Formally Refutes Allegations of Illicit Financing and Connections to Justin Sun

Circle, a leading issuer of stablecoins, has recently addressed and strongly refuted allegations regarding its involvement in illicit financing and alleged connections with Justin Sun, the founder of Tron. These claims, brought forward by the nonprofit watchdog organization, Campaign for Accountability (CfA), prompted Circle’s Chief Strategy Officer and Head of Public Policy, Dante Disparte, to write a formal response to U.S. Senators Elizabeth Warren and Sherrod Brown.

In the letter, Disparte emphatically denies any involvement of Circle in facilitating or financing activities related to Hamas or any other illicit actors. He highlights Circle’s unwavering commitment to combating illicit financial activities. Circle has been an active partner with regulators and law enforcement in the United States, Israel, and other jurisdictions, ensuring that their stablecoin, USDC, is not used for illicit activities. The company’s dedication to legal compliance was recently acknowledged by the U.S. Secret Service, recognizing Circle’s efforts in identifying fraud and assisting in fund recovery.

Addressing specific allegations, Disparte referred to an incident where the National Bureau for Counter Terror Financing of Israel identified digital wallets linked to the Palestinian Islamic Jihad (PIJ) with assets amounting to $93 million. A report by the blockchain firm Elliptic initially suggested that all assets in these wallets were used to finance PIJ, but this was later corrected. Public blockchain ledgers revealed that of the $93 million, only $160 in USDC was transferred among those wallets, and none of that amount originated from Circle. This example underscores Circle’s stance against the misrepresentation of its role in alleged illicit activities.

Furthermore, Circle clarified its relationship with Justin Sun, stating that it does not provide banking services to him or his associated entities, including the TRON Foundation or Huobi Global. Despite the absence of specific designations by the U.S. government, Circle terminated all accounts associated with Mr. Sun and his affiliated companies in February 2023.

Circle also emphasized its status as a highly regulated financial entity. It operates under the regulatory frameworks of multiple U.S. states and federal bodies, including the Ohio Department of Commerce Division of Financial Institutions and the New York Department of Financial Services. As a Money Services Business registered with FinCEN, Circle adheres to the Bank Secrecy Act, anti-money laundering laws, and other regulatory standards. This regulatory compliance is a cornerstone of Circle’s operations, reflecting its commitment to legal and ethical business practices.

In its advocacy for regulatory reforms, Circle has been a vocal proponent for a comprehensive federal framework governing stablecoins. The firm has actively participated in legislative processes, seeking to establish robust reserving, redemption, disclosure, liquidity, and operational risk management standards for stablecoin issuers. Circle’s CEO, Jeremy Allaire, has testified before Congress, advocating for standards that would elevate the safety and reliability of stablecoin issuers.

Circle’s response to the allegations made by the CfA is a strong affirmation of its dedication to regulatory compliance and ethical practices in the digital assets space. The company remains committed to collaborating with regulatory bodies to enhance the regulation of digital asset markets and to combat money laundering and terrorism financing effectively.